Five years ago, Vanguard’s record-keeping business began targeting small plans with the launch of Vanguard Retirement Plan Access, a unit established to provide specific services and platforms for start-up plans and established 401(k)s with up to $20 million in assets.

Since then, growth in the VRPA unit has been explosive.

In 2012, the unit serviced 445 plans and 16,446 total individual accounts. The average plan account value was $1.9 million, putting total assets in the $846 million range.

As of the end of last year, Vanguard was the service provider for 6,506 plans on its VPRA platform, with 273,045 total individual accounts. The average plan account value was $2.3 million, putting total assets in the $15 billion range.

According to Vanguard’s Small Business Edition of the firm’s 2017 How America Saves report, small plans are benefiting from many of the plan design trends driving the large plan market.

The increasing utilization and influence of advisors catering to the small plan market is driving those trends.

“Many small business owners are partnering with advisors to help navigate and manage the complexities of their 401(k) plan and accompanying fiduciary responsibilities,” said Crystal Hardie Langston, principal and head of VRPA, in a statement.

“In large part due to the invaluable support of advisors, we’re seeing meaningful developments in small business plan design, which is really moving the savings dial for more working Americans,” said Hardie Langston.

Here is a look inside VRPA’s numbers, and how small plans in the Vanguard record-keeping universe stack up to trends seen with its large plan clients:

1. Start-up plans have below-average numbers

Vanguard separates two plan populations when analyzing its VRPA data: start-up plans initiated within the past three years; and established plans initiated more than three years ago.

The average VRPA plan has 42 participants. The 1,997 start-up plans average 25 plan participants and have an average of $500,000 in total plan assets. The 4,509 established plans average 50 plan participants and have an average of $3.1 million in total plan assets.

2. Small plans less likely to use automatic enrollment

Auto enrollment has been adopted at a much slower rate among small plans relative to large plans serviced by Vanguard.

Only 15 percent of VRPA plans use automatic enrollment, compared to 45 percent of large plans that had adopted the feature by the end of 2016.

As with large plans, the 3 percent default rate is most common among small plans, with 57 percent of VRPA plans using that rate; 13 percent of VRPA plans automatically default participants at 6 percent of income or higher; 38 percent default at 4 percent or more; and 10 percent set the default deferral at less than 3 percent of salary.

3. Participation rates increase with auto-enrollment

Participation rates remain the broadest gauge for overall plan success, the report says. As with large plans, participation rates in VRPA plans dramatically increase with automatic enrollment.

The participant-weighted average participation rate, which takes the percentage of all eligible employees in the VRPA universe, is 82 percent in plans with auto-enrollment, compared to 57 percent in plans without it.

4. Income affects participation

Only 39 percent of eligible employees making less than $30,000 a year participated in their employer plan, compared to 85 percent of employees making more than $100,000, underscoring a key reality in the ongoing consideration of the nation’s overall retirement prospects—that lower earners simply don’t make enough disposable income to save in defined contribution plans.

5. Auto-enrollment vastly improves saving habits of low earners

Nonetheless, automatic enrollment vastly improves the saving habits of lower-wage earners in the VRPA universe. For those making less than $30,000, 72 percent participate in plans when auto-enrolled, compared to just 33 percent in plans without the feature.

And 85 percent of eligible workers that make between $30,000 and $50,000 a year participate in plans when automatically enrolled, compared to 57 percent in plans without the feature.

6. Account balances lower

The average account balance in the VRPA universe is $55,480, considerably lower than the average balance of $96,500 with large plans serviced by Vanguard.

When separating start-up plans, the average balance in the VRPA universe tracks somewhat closer to that seen in larger plans. For established small plans, the average balance is $62,925; for start-up plans, the average balance is $21,573.

7. Deferral rates less with auto-enrollment

Average deferral rates were 5.7 percent in plans with auto-enrollment, and higher in plans without it—7.3 percent.

That trend—automatically enrolled participants contributing less than those that voluntary enroll—somewhat aligns with the trend seen in larger plans serviced by Vanguard, where the average deferral is 6.1 percent for plans with auto-enrollment, and 6.3 percent in plans without it.

One in five participants deferred more than 10 percent of income, and 12 percent deferred the statutory maximum.

8. Employers contribute less

When accounting for employer contributions, the average savings rate in the VRPA universe was 9.3 percent in 2016, compared to 10.9 percent with larger plans.

9. Small sponsors continue to warm to TDFs

Half of all contributions were directed to target-date funds in 2016, compared to 33 percent in 2012. Nearly all—97 percent—of plans that automatically enroll employees default them into a TDF.

10. VRPA plans offer more rather than fewer investment options

In 2016, the average VRPA plan offered an average of 20.2 investment options to participants, compared to 27.4 in Vanguard’s larger plans.

Few plans take a minimalist approach to menu design—only 5 percent offer between six and 10 investment options, and a statistically negligible number of sponsors offer fewer than five investment options.

Instant Insights /

10 small-plan trends in the Vanguard universe for sponsors and advisors

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